We’ll know more about the Fed’s thinking Wednesday afternoon when the Fed minutes publish at 2 p.m.
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Federal Reserve officials widely agreed last month the economy was nearing the point where interest rates should move higher, but anxious lagging inflation and a weak global economy posed too big a risk to commit to “liftoff”. The headline CPI also received a boost in June from a rise in energy prices, which increased by 1.7% for the month. “Participants observed that the labor market had improved notably since early this year, but many saw scope for some further improvement”, the Federal Reserve’s July 28 and July 29 minutes said. A stronger dollar is also keeping inflation at bay by reducing prices of imported goods.
A government data released on Tuesday revealed that the U.
The break-even rate, or the differential between the benchmark 10-year Treasury note and the 10-year TIPS, fell to 1.57 percentage points Wednesday, near this year’s low of 1.53 percentage points in January.
“The Fed is backing off from September“, John Herrmann, director of U.S. rate strategy at Mitsubishi UFJ Securities, said in an interview on Bloomberg Television.
The Fed appeared on track to raise interest rates later this year but has signaled a desire to see further economic gains and higher inflation.
The minutes were released as consumer prices rose by a modest 0.1pc last month.
The undercurrent of the discussion showed broad support among Fed officials for an increase in interest rates sooner rather than later.
Following the release of the Fed’s minutes, US stocks rallied briefly but then fell back, while the dollar weakened on the currency markets. “That would argue against a Fed rate hike“. “The minutes show the Fed was concerned about disinflationary pressures coming from China before China’s move to allow its currency to depreciate”, said Axel Merk, president and chief investment officer of Merk Investments in Palo Alto, California.
Moody’s Analytics analyst Ryan Sweet said the minutes confirmed that a rate hike at the September 16-17 meeting remained possible, but was “not a slam dunk, and we believe the odds have diminished over the past couple of weeks”.
The dollar was 0.3 per cent lower on the day against its basket at 96.747, while the euro traded at $1.1065.
Yum Brands rose 1.5 percent to $85.50, a day after the owner of the KFC and Pizza Hut chains announced new leadership for its China division as activist investors lobby the company to spin off that business.
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September federal funds futures implied traders expect a 45 percent chance of the Fed raising rates in September, while likelihood of a December rate increase held steady at 73 percent according to CME Group’s FedWatch program, Reuters reported.
